Economic nexus allows Texas to tax out-of-state businesses that have no physical presence in the state but generate significant revenue from Texas customers. Understanding the thresholds and requirements helps businesses stay compliant and avoid unexpected tax obligations.
For Texas sales tax purposes, economic nexus applies if your total revenue from sales into Texas exceeds $500,000 during the preceding twelve calendar months. This threshold considers all taxable and non-taxable sales of tangible personal property and services delivered into Texas. Once you cross the threshold, you must register for a Texas sales tax permit and begin collecting tax on taxable transactions.
The $500,000 threshold is measured on a rolling basis. You don’t wait until year-end to determine whether you crossed it. If you exceed $500,000 in any twelve-month period, nexus applies. Once established, nexus continues until you fall below the threshold and remain below it for a period, though Texas doesn’t specify exactly how long that period must be.
Marketplace sales count toward the threshold, but they don’t create a collection obligation if the marketplace facilitator is already collecting tax on your behalf. You still need to track these sales for nexus determination purposes. Additionally, if some of your Texas sales go through marketplaces and others are direct, you collect tax on the direct sales once you have nexus.
Texas franchise tax has different nexus standards that don’t depend on a specific revenue threshold. Any entity “doing business” in Texas has franchise tax nexus, and doing business is interpreted broadly. Out-of-state businesses receiving any Texas-sourced income may have franchise tax filing obligations even if their Texas revenue is well below the sales tax threshold.
Monitoring your Texas revenue is essential if you sell into the state without physical presence. Many businesses cross the nexus threshold without realizing it, creating exposure for uncollected tax, penalties, and interest. By the time they discover the problem, multiple years of liability may have accumulated.
If you’ve crossed economic nexus thresholds and haven’t been collecting Texas sales tax, you have options. Voluntary disclosure programs allow qualifying businesses to limit the lookback period and eliminate penalties. The key is coming forward before the Comptroller contacts you.
Questions about economic nexus can be complicated. Schedule a free consultation to discuss your specific situation.
